Rabobank became the fifth firm penalized for manipulating Libor — the London Interbank Offered Rate that's used to set the rates on trillions of dollars of mortgages, car loans, student loans and some complex financial derivatives. Libor rates cover multiple currencies worldwide for varying time periods. The bank also rigged rates for Euribor, a similar financial benchmark.
The rates are set each business day by the London-based representatives of global banks based on estimates of what they would expect to pay for short-term loans from each other in various monetary currencies.
In the U.S., the Department of Justice and the Commodity Futures Trading Commission joined the United Kingdom's Financial Conduct Authority and the Dutch public prosecutor's office in imposing the costly settlement penalties against the Utrecht-based bank.
The bank's chairman, Piet Moerland resigned in the wake of the penalties, saying "I wish to send a strong message on behalf of the bank and on behalf of the executive board: we sincerely apologize for, and strongly condemn, this inappropriate behavior." Moerland will be succeeded by Rinus Minderhoud, a member of the bank's supervisory board.
The Department of Justice action involves a deferred-prosecution agreement that requires Rabobank to admit responsibility for its misconduct, maintain cooperation with investigators and upgrade legal compliance programs.
Swiss banking giant UBS, Royal Bank of Scotland, England-based Barclays and ICAP, the world's largest inter-dealer broker, collectively paid earlier paid fines and settlements that totaled approximately $2.6 billion for similar manipulation allegations.
"For years, employees at Rabobank, often working with traders at other banks around the globe, illegally manipulated four different interest rates �! �� Euribor and LIBOR for U.S. dollar, Yen, and Pound Sterling – in the hopes of fraudulently moving the market to generate profits for their traders at the expense of the bank's counterparties," said Acting Assistant Attorney General Mythili Raman of the Justice Department's Criminal Division.
According to authorities, Rabobank's rate-rigging took place from at least mid-2005 through early 2011. The bank's traders engaged in hundreds of manipulative acts that moved the financial benchmarks up or down in a bid to help bank traders' financial positions, investigators said. As a result of the manipulation, some borrowers may have paid rates that were too high or too low on their loans.
U.S. investigators said Rabobank traders used emails and electronic chats to carry out the scheme. For instance, a Rabobank yen derivatives trader sent an incriminating Sept. 21, 2007, email message to a bank co-worker responsible for setting the Libor rate on Japanese yen.
"Wehredo you think today's libors are? If you can, I would like 1mth (month) libors higher today," the trader wrote.
"Bookies reckon 1m sets at .85," the co-worker responded.
"I have some fixings in 1 mth so would appreciate if you can put it higher mate," the trader urged.
"No prob mate let me know your level," the co-worker wrote.
"Wud be nice if you could put 0.90% for 1mth cheers," the trader instructed.
At the end of the exchange, the co-worker brushed off concerns that the manipulation might prompt complaining phone calls. "Don't worry mate — there's bigger crooks in the market than us guys!"
According to authorities, Rabobank's one-month yen Libor submission that day was 0.90, an increase of seven basis points from the bank's previous position. In contrast, other banks yen submissions decreased by approximately half a basis point on average.
In addition to the banks snared in the scandal, the worldwide Libor investigation has also generated charges in Great Britain and the U.S. against! Thomas H! ayes, a former Citigroup and UBS yen trader allegedly at the center of the manipulation. Two other traders have also been charged in the continuing investigation.
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